Budget sequestration

The meat cleaver we need

IN HIS failed effort to prevent the automatic, across-the-board budget cuts known as "the sequester" from going into effect, Barack Obama warned of the inability of such a "meat-cleaver approach" to distinguish between a "bloated program" and a "vital service", and he made a list of chilling, specific predictions about the vital services that would falter. As David Fahrenthold and Lisa Rein of the Washington Posttell it,

There would be one-hour waits at airport security. Four-hour waits at border crossings. Prison guards would be furloughed for 12 days. FBI agents, up to 14.

At the Pentagon, the military health program would be unable to pay its bills for service members. The mayhem would extend even into the pantries of the neediest Americans: Around the country, 600,000 low-income women and children would be denied federal food aid.

But none of those things happened.

Mr Fahrenthold and Ms Rein examined what actually happened since sequestration kicked in on March 1. They found that of the administration's 48 dire prophecies, half have not come to pass, while the jury's still out on 13. When one looks at the the 11 predictions that have panned out, only a small handful provide cause for serious concern.

One of the basic ideas of political economy is that the costs of any particular government programme are diffuse, spread over the entire (present and near-future) taxpaying population, while the benefits of the programme are concentrated on a relatively small class of beneficiaries. Even large cuts in most specific programmes will save the typical taxpayer at best a few pennies, yet even small cuts can hit a programme's beneficiaries—administrators, contractors, subsidy recipients, etc—very hard. This asymmetry in the burdens and benefits of programmatic spending creates a corresponding asymmetry in political motivation. A few cents is hardly enough to grab taxpayers' attention, but one can count on most programmes' beneficiaries fighting tooth and nail against cuts. So, other things being equal, nothing gets cut, and government grows and grows.

Though the costs of any given programme are quite diffuse, the burden of government spending, taken as a whole, is by no means small change for the typical taxpayer. A cut in aggregate spending therefore stands to benefit many taxpayers enough to make a real difference, even when he or she takes into account losses as the beneficiary of certain programmes. On the other side of the equation, few of us see ourselves as direct beneficiaries of aggregate government spending, except in an abstract or theoretical way. Furthermore, special interests are accustomed to competing, not cooperating, for shares of the budget, so one tends not see recipients of nutritional assistance banding together with engineers from General Dynamics to mobilise against across-the-board cuts.

In other words, if we're ever going to cut spending in a serious way, we may need "meat cleavers" to do it.

That said, big, dumb, indiscriminate across-the-board cuts in reality turn out not to be as dumb or indiscriminate as they look. Politicians and bureaucrats, once faced with a settled fact of constraint, often find a way to do what they really consider important. As Mr Fahrenthold and Ms Rein report:

In some cases, agencies dug into their budgets and found millions they could spare. In other cases, Congress passed a law that allocated new funds or shifted money around. In others, lawmakers signed off on an agency’s proposal to “reprogram” its money.

In the process, the “meat cleaver” of sequestration often became a scalpel. It spared crucial programs but cut second-tier priorities such as maintenance, information technology, employee travel and scientific conferences.

This is why many of Mr Obama's direst warnings have not panned out.

But some of them have. A number of not-very-expensive programmes specifically for the poor have not fared well. Rental assistance for the rural poor has been cut, as have some emergency unemployment benefits. This might reflect the fact that politicians don't care enough about poor or jobless voters to save their benefits. But then, defence programmes have taken the biggest hits, and we know politicians care about them. To those of us who believe that America is prone to start wars just because it can, reductions in American "military readiness" come as humanitarian good news that may well offset the bad news about transfers to the needy. In any case, I don't know of another way to put such a dent in America's lavish spending on its war-making capacity, and I'm glad that it has happened.

Of course, the sequester was ill-timed, and has probably hampered America's economic recovery. That shouldn't stop us from drawing some general lessons from the experience, though. Meat cleavers work, and they aren't in practice so indiscriminate as they may seem to be. They focus attention, clarify priorities, and lead to the swift discovery of previously unimagined economies. That the effect of the sequester has been relatively benign so far strikes me as a data-point in favour of relatively inflexible fiscal rules, such as debt-ceilings and balanced-budget amendments, capable of somewhat offsetting the diffuse-cost/concentrated-benefit dynamic that otherwise drives democracies toward imbalance and ruin.

Having lived in DC, I personally saw a government-funded agency buy caviar as part of a going-away dinner for a temp! I was told that they needed to spend the rest of the budget or it would be reduced.

True enough, to an extent. However, this exercise is forcing the federal government to re-examine even these untouched issues now, because of the forced belt-tightening in other areas. When government agencies have to cut back on programs and reallocate funding from others in order to fund critical projects, those same agencies start agitating for additional funding or the cutting of government spending elsewhere, in order to alleviate their own burdens.

This has been a very good exercise in forced dieting. This is the government fisc version of "The Biggest Loser", and while painful to experience, it is somewhat fun to watch from the outside and is for the long-term benefit of the participants despite the short-term discomfort.

See my series of comments below. Claiming that sequestration is affecting maintenance is a pretty broad generalization that is creating some misimpressions among the public.

What is being cut back or deferred are SOME forms of routine maintenance. For example, instead of changing the oil in the fleets of government vehicles every three months, they are being changed every four or five instead. Instead of repainting offices every two or three years, the repainting is being postponed for an additional year. Instead of replacing computer equipment every two years, existing equipment is being retained. Window washing is being put off. Etc.

Other forms of critical maintenance are still being performed. For example, the federal Highway Trust Fund is exempt from sequestration for things like repair and maintenance. Other exempt spending programs include, but are not limited to, Social Security and Medicaid; refundable tax credits to individuals; and low-income programs such as the Children’s Health Insurance Program, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income. Some discretionary programs also are exempt, notably all programs administered by the Department of Veterans Affairs. Also, subject to notification of Congress by the President, military personnel
accounts may either be exempt or reduced by a lower percentage.

Making the hard choices and prioritizing used to be called governance and the means of doing so in a forest of opinions politics. Inalterable opposition and "my way or the highway" only leads to MADness (as in the old Mutual Assured Destruction). History will remember the USA as the North American Balkans.

Agreed. There seems to be an agency problem at the core of all representative democracies, and this problem seems to become less manageable as a state grows in size, complexity or partisanship. Inefficient and pathetic as it may be, a periodic self-decimation may be the best remedy we can hope for.

But the fact that the sequester only came into existence as a bipartisan accident does not say much for our business model. The only reform we managed to accomplish was both ugly and completely unintentional.

It's one thing to highlight cuts to the media for political reasons; it's another to say that the cuts so highlighted were the only ones the executive branch made. There wasn't much prioritization until Congress provided legislative relief. Otherwise, the cuts were made across the board equally at the "programs, projects, and activities" level, whatever that means for each agency. But that's neither here nor there I suppose since both the "normal" process and sequestration involved funding decisions made by politicians for parochial reasons.

The executive branch DID prioritize the cuts from the start. They highlighted cuts that would have the largest impact on the public. Congress prioritized cuts that would avoid impact on local economies. The "dumb" approach seeks to avoid prioritization by politicians.

(1) No Pentagon means we may as well all move to Russia, Iran, Zimbabwe or North Korea. The Pentagon is the only organisation on the planet that holds criminal dictatorships in check. It is not perfect but it is all we have.

(2) NASA is the research base from which the necessary future space based economy will evolve. No energy and resources from space and our species will go extinct within a couple of centuries.

There are probably no better ways to end humanity than cutting our ability to defend ourselves against criminals and at the same time stopping the research into developing the next frontier for free peoples.

This post is precisely what the leaders of criminal juntas would say.

How about unilateral US abandonment of nuclear deterrence? How about melting down all the aircraft carriers and air-force jets into ploughs?

It would be a plausible alternative, if it included the entire budget. The areas which will cost in the future were untouched, while those which would generate growth in the future were cut. Your problem is that you don't understand the full cost of the cuts. 90% of the current US economy is the indirect result of government spending, and all of that is lumped into 'discretionary'.

We are only seeing the tip of the iceberg for the effects of the sequester. Can we blame any of the SFO crash on the sequester (cutback in controllers, slowdown of repairs, etc.), the Snowden release of classified info (reduced oversight of contractors), western wildfires and loss of life among firefighters (cutbacks in support of firefighting), Alaska commuter plane crashes (cutbacks in air traffic control system and commuter air system oversight), etc. You can take any of the headlines for the past six months and attribute the fault partly to the sequester. The media merely are not doing so. But, as a former government manager, I can tell you that it is the long term planning and preparation which suffers in a cut of the kind represented by the sequester. The government manager can steal from the future to cover expenditures in the present. This is one reason why our infrastructure is in such sad shape. Maintenance can be pushed off into the future to make room for present day spending. Is this a real saving? I would suggest it is not. We can cut back on military training to save money, but will it have an impact on the capabilities of the forces when we need them in the future? We can cut back on purchases of weapons we calculate we will need in the future. If you agree we need that capability in the future, is this a savings? We can cut back on safety and environmental inspections, but will we have more accidents and environmental releases in the future? Did the West Texas explosion occur because the regulatory inspections were delayed by the sequester or made less effective by spreading the inspectors over a larger workload?

My dear Ajay, cuts in defense spending would hit many research projects on stream indeed.
This is okay with the pacifists but the unemployment it would create in skilled and qualified persons will be very tragic

Kill the home interest mortgage deduction for starters and in general make people bare the full price of credit purchases.

In the end, if housing is suffering inflation, old people need to suck it down, or figure out how to stay in their houses by moving the kiddies back in, if they put all their eggs in one basket.

Also make life a little more difficult for speculators by jacking the taxes on non residential purchases. Right now the rest of the world is gobbling up housing in Ca and a few other places as a safe haven against inflation. Banks are probably trying to play the market to recover prices so they can finally offload their toxic waste. Either that or others are buying homes because the Fed is hoovering up mortgage backed securities and people buy it to spin it into those instruments.

"No, the best way to have them keep their houses would have been stable housing prices."

And how does one do this outside of price controls or building millions of homes all at once? California tried the latter, and prices still went up a lot. And the former has way to many bad side effects to make any sense.